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The Power of Saving Now – Not tomorrow – Now!!!

11 July 2016 | Published by AME

We all know we need to save. But saving or investing, for a lot of people, falls into the category of: ‘Things I’ll do one day when I have time’ – And…You never get the time! The days, months and years march on. Sometimes the money just sits in a bank account earning very little interest. And often, we just use it – to buy that brand new gadget we didn’t really need, but really wanted!!!

I’m going to tell you the story of twins – Dianne and Jenna. Dianne starts investing at age 20. She invests for 10 years until she is 30. She saves R3000 a year. At age 30 she stops saving. She just leaves it in an account earning 8% interest per annum.

Her twin sister, Jenna didn’t believe in saving in her 20’s but when she reached 30 she thought she had better start saving and put aside R3 000 a year in a savings account, earning 8% interest per annum. Jenna is diligent. She does not stop her contributions until retirement at age 60.

Let us recap: Dianne invested for 10 years (from age 20 till age 30). Dianne’s total investment was R30 000 (10 years x R3000 per year)

Jenna invested for 30 years – 20 years more than Dianne (from age 30 till age 60). Jenna’s total amount invested was R90 000 (30 years x R3000 per year)

Both sisters retire at age 60.

In the table below, the information we have would appear as follows:

Name of Twin

Years of contribution

Amount invested

Dianne

10 (from age 20 till 30 – then just left the money in the account earning interest)

R30 000 (R3 000 per annum)

Jenna

30

R90 000 (R 3000 per annum)

Who will have more at retirement age? Without doing the maths – it’s got to be Jenna!!

She has saved for 3 times as long – 30 years as opposed to Dianne’s 10 years. She has invested 3 times as much – R90 000 as opposed to Dianne’s R30 000.

However, if you do the maths, you’ll be shocked!!! Dianne has way more than Jenna at age 60. Dianne has R472 000 in her account while Jenna only has R367 000.

This is the power of COMPOUND INTEREST!

Every child should be shown this sum at school. Every parent should share this sum with their child.

You can’t go back in time to start saving at age 20 if you’re now 50. But, starting to save now will give you significantly more at retirement than waiting. The big lesson is: The earlier you start saving, the fewer years you need to save for. If however, Dianne had kept saving from age 30 till 60 – well then… that’s one smart lady!